The Value Village thrift-store chain knowingly misled customers by deceptively marketing itself to the public as a charity, a King County Superior Court judge ruled Friday.
In reality, the Bellevue-based company, also known as Savers, is the largest for-profit thrift retailer in the world.
Value Village, however, prevailed on some of the claims made against the company by Washington Attorney General Bob Ferguson in a 2017 consumer-protection suit.
King County Superior Court Judge Roger Rogoff will determine penalties against Value Village at a hearing next spring. The suit sought damages of up to $2,000 per violation. Previously, the AG's office had offered to settle for $3.2 million.
Rogoff delivered his ruling orally. A Value Village spokesperson said the company will wait until he releases his written ruling next week before deciding whether to appeal.
"Value Village is proud of our business and we have operated with the support of our customers and nonprofit partners for more than 50 years," Value Village general counsel Rich Medway said in a statement.
In part, the case was a dispute over how Value Village portrayed its business model to shoppers. The company generally pays nonprofits and charities a negotiated rate for donations received from the public. It uses the names and logos of those charities to help solicit donations.
One thing Value Village does not do is donate to charities a portion of the purchase price when customers buy goods.
Rogoff ruled the chain's marketing misleads customers to think it does -- in part due to in-store ads like those reading, "Your donations and purchases help us fund (nonprofits') programs and services. How's that for shopping with a smile?"
He also ruled that Value Village misled customers into thinking that their donations would support Spokane-based Rypien Foundation. In that instance, though, Value Village was paying Rypien a flat fee of $4,000 per month.
Rogoff upheld the state's broadest claim, that Value Village misled customers into believing the for-profit company itself was actually a charity.
A survey conducted by the AG's office found that 75% of Washingtonians mistakenly believed that Value Village was a nonprofit. And, Rogoff ruled, Value Village's own marketing studies showed the company knew that its advertising could deceive consumers.
"Value Village profited by misleading Washingtonians into believing that it was a nonprofit," Ferguson said in a statement. "My office received numerous complaints from consumers who feel deceived by Value Village's advertising."
Value Village prevailed on some points in the lawsuit, however.
For one, the judge didn't buy the state's claim that by giving donors receipts to claim their donations as tax deductions, Value Village misled consumers into thinking the nonprofit featured on the receipt receives the full value of their donations.
In reality, Value Village pays nonprofits a tiny fraction of a donated item's value, and often splits the value of donations among multiple nonprofits -- not just the one on the receipt.
Rogoff also turned down the state's claim that the company failed to make required disclosures in its stores after registering as a for-profit commercial fundraiser.
And the judge rejected the state's claim that Value Village violated the terms of its contract with Eluna, formerly the Moyer Foundation, by continuing to use the charity's name and logo to solicit donations after its contract had expired. The initial complaint asserted that three Value Village locations claimed through 2015 that donations benefited Eluna, serving children and families affected by grief and addiction, even though the company's contract with the nonprofit ended in 2006.
Rogoff said he believed Value Village's fundamental business model was sound, and praised the company for fundraising on behalf of charities, according to a Value Village spokesperson.
The AG's 2017 suit came on the heels of a similar 2015 complaint filed in Minnesota. Value Village settled that suit for $1.8 million.
A federal judge dismissed in April 2018 a countersuit filed by Value Village alleging the Washington AG's investigation was an attempt to dictate the terms of the company's contracts with nonprofits.
Parent company Savers, which Ferguson claimed has annual revenues of $1 billion, was founded by Bill Ellison in 1954 as a thrift store in San Francisco's Mission District, and in recent years has been owned by a succession of private equity firms.
It runs 330 stores worldwide and 20 Value Village stores in Washington state -- though after Nov. 16, when the Crown Hill location closes, none in Seattle.